Alan Greenspan: The New Mr. Dollar

The office is ornate and spacious but nothing at all special by Washington standards. Yet the 27-ft. by 16 3/4-ft. second-floor sanctum in the marble- clad Federal Reserve Board building on Constitution Avenue has a unique feature: from behind its cluttered wooden desk, the occupant has a breathtaking view of almost every hazard that currently confronts the U.S. and world economies. In the foreground is the distressingly weak dollar, which threatens to push the inflation rate out of control once again. In the middle distance: sluggish levels of U.S. and world growth that could easily tail off into global recession, especially if American interest rates, already on the rise, should climb too high. In the background is the ugly accumulation of Third World debt, an unstable mass that if not properly managed could still crush the world financial system.

No wonder then that a wave of nervousness swept through financial markets last week when Ronald Reagan announced an epochal change at the Federal Reserve Board, the chief government authority for setting U.S. monetary policy. Political leaders, investors and currency traders in every part of the globe were understandably concerned that a new and untested man was being entrusted with the fate of the dollar, the course of U.S. interest rates and quite possibly the prosperity of the world economy. The change was all the more dramatic because it removed from the scene a commanding figure who in eight years has earned a heroic reputation and the profound trust of the international financial community as the world's foremost inflation fighter and its top central banker.

Just before leaving Washington for this week's Venice summit for leaders of the major industrial nations, the President said he had accepted with "great reluctance and regret" the resignation of Federal Reserve Chairman Paul Volcker, 59, effective in August at the end of his second four-year term. His successor, and thus the new Mr. Dollar, will be Alan Greenspan, 61, a highly regarded private economist (and longtime member of TIME's Board of Economists) who served as chairman of the Council of Economic Advisers during the Ford Administration. Said Greenspan last week, after revealing that it took him "milliseconds" to accept the President's job offer: "Under Paul's chairmanship, inflation has been effectively subdued. It will be up to those of us who follow him to be certain that those very hard-won gains are not lost."

Greenspan admitted that it would be a "major challenge to fill Volcker's shoes." By law, the activities of the Fed are insulated from White House or congressional interference, but Volcker's imposing presence (he is 6 ft. 7 in.) and his supremely assertive stance have over the years added more substance and clout to the Fed's famed independence. Indeed, in many foreign capitals, Volcker has been viewed as virtually the sole guarantee of sound American monetary policies, immune to political pressure. One commentator went so far last week as to describe him as a "financial demigod."